The kids have finally left home and now you’re rattling around in a house way bigger than you need. If it’s time to think about downsizing the home, there’s more to it than simply selling one house and buying another.

Here are a few things to consider.

Tax-free gain

Selling a large house and buying a townhouse or unit, perhaps in a more affordable suburb, can free up a significant sum of money which you could use to help fund your retirement or take that dream international holiday.

Before getting excited, consider expenses like agent fees, removalist costs, and stamp duty on the new property. This will give you a better idea of how much additional cash you are likely to be left with.

Generally, any capital gains on the sale of the family home are exempt from capital gains tax (CGT). However, if the home has been used for income-producing activity, such as running a business or letting out a room, then a portion of the gain may be subject to CGT.

On the upside, downsizing the home may reduce your living costs. New homes are usually more energy efficient, and cost less to heat and cool than older housing stock.

Centrelink considerations

The family home is exempt from Centrelink’s age pension asset test. If qualifying for a full or part age pension is important to you, you may not want to free up too much cash when downsizing.

Indeed, some retirees actually dip into their savings to buy a higher value home.

Their aim is to reduce their assessable assets and maximise their pension entitlement.

This isn’t always a good idea because it increases the risk of trapping you in the ‘asset rich, cash poor’ situation.

Super boost

The government allows Australians over 65 to contribute up to $300,000 each ($600,000 for couples) to super from home sale. The government will treat this amount as a non-concessional (after-tax) contribution, exempt from the usual restrictions.

The contribution must be made within 90 days of the change of ownership. For most people under 65, super may also be a desirable destination for most of the money freed up by downsizing.

Make sure that any contributions fall within the relevant limits.

Emotional cost

While the financial benefits of downsizing the home can be considerable, moving house is amongst life’s most stressful events. This is particularly the case when you are giving up a home full of family memories, and parting with many prized possessions to fit into a smaller space.

Just being aware that you may face an emotional reaction is a start, but be open to seeking professional support if moving does bring on a bout of the blues.

Seek financial advice

Downsizing has both financial and lifestyle dimensions, and you’ll want to make the most of any profits you realise.

Just give me a call on 07 3162 1449 or fill in the form below before you get the real estate agent in. I will be able to work with you to craft a short-term strategy to help ensure your downsizing experience supports you in achieving your long-term goals.

    This article contains information that is general in nature. It does not take into account the objectives, financial situation or needs of any particular person. You need to consider your financial situation and needs before making any decisions based on this information.